WHO IS LIABLE TO PERSONAL INCOME TAX?
One important concept to consider is that of residence. Residence can be defined as the place where someone lives. However, it has a very specific meaning as far as taxation is concerned. For tax purposes, residence varies considerably from state to state. For individuals, physical presence in a state is an important factor. Some states also determine residence of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests.
An individual is taxable in Rwanda only if he/she has a tax residence there. According to article 3 of Law Nº 16/2005 of 18/08/2005. On Direct Taxes on Income (DTI) the following have tax residence in Rwanda:
o Taxpayers with a permanent residence in Rwanda or; o Taxpayers who have a principal residence in Rwanda or; o Diplomatic agents or consular Rwandans accredited abroad.
An individual who stays in Rwanda for more than 183 days in any 12-month period, either continuously or intermittently, is resident in Rwanda for the tax period in which the 12 month period ends.
If during a tax period, a resident in Rwanda generates income derived from taxable activities performed abroad; the income tax payable by that resident in respect of that income is reduced by the amount of foreign tax payable on such income in accordance with articles 3° and 4° of the Law Nº 16/2005 on Direct Taxes on Income. The amount of foreign tax payable shall be substantiated by appropriate evidence such as a tax declaration, a withholding tax certificate or any other similar acceptable document.
The reduction of the income tax provided for by the Rwandan legislation shall not exceed the tax payable in Rwanda on income from abroad.
A resident taxpayer is liable to income tax per the tax period from all domestic and foreign sources in accordance with articles 3 and 4 of the said law.
A non-resident taxpayer is only liable to income tax which has a source in Rwanda.
The incomes which are regarded as Rwandan source are enumerated in article 4 of Law Nº 16/2005 as follows:
- Income generated from services performed in Rwanda, including income generated from employment;
- Income generated by a craftsperson, musician or a player from his or her performances in Rwanda;
- Income generated from activities carried on by a non-resident through a permanent establishment in Rwanda;
- Income generated from sale of movable assets owned by a permanent establishment in Rwanda;
- Income generated from the following assets in Rwanda:
- immovable assets and accessories thereto;
- livestock and inventory generated from agriculture and forestry;
- usufruct (the right of one individual to use and enjoy the assets of another) and other rights derived from an immovable asset if such an asset is in Rwanda;
- income generated from the sale of assets including immovable assets and accessories, livestock and inventory from agriculture and forestry, and all usufructs and rights in relation with an immovable asset or its accessory.
- dividends distributed by a resident company;
- profit shares distributed by a resident partnership;
- interest paid by the Central Government, District, a resident of Rwanda or by a permanent establishment that a non-resident maintains in Rwanda;
- license fees including lease payments and royalties or artistic fees paid by a resident, or paid by a permanent establishment owned by a non-resident in Rwanda;
- income generated from any other activities carried on in Rwanda.
According to article 6 of the DTI, if during the fiscal year, a resident receives an income from taxable activities carried on abroad, (as defined by the provisions of articles 3 and 4 of the DTI) the tax payable by this resident under this income is reduced by the tax paid on his/her foreign income in the other country. However, the tax due cannot be higher than the tax which would have been taken in Rwanda from this income with a foreign source. In other words, the foreign tax credit will be allowed only up to the amount of the correspondingly due in Rwanda.
However, there is a residual problem remains: if the taxpayer systematically chooses to pay the tax in order abroad against the tax credit in Rwanda, there will always be a resultant loss of earnings in Rwanda. The only solution to this problem is the negotiation of preventive conventions of double taxation to deal with the situation.
INCOME SUBJECT TO PERSONAL INCOME TAX
Taxable income is composed of the following:
- Employment income,
- Business profits and
- Investment income
Income tax on employment Tax base
According to article 13 DTI, incomes’ of employment covered by the Professional Tax on Remunerations or pay as you earn (PAYE) are payments in cash (including any advances on wages) and benefits in kind received by an individual by way of remuneration.
Payments in cash
Article 13 lists the payments aimed in cash by income tax of work:
- wages, salaries, vacation allowances (for civil servants), allowances for cancellation of paid leave (if a legal leave was not allotted to the worker), sickness benefits (above those of the RSSB), attendance fees, commissions, premiums and allowances;
- allowances, including cost of living allowances, subsistence allowances, rent allowances, any expenses of representation or displacement;
- payments covering the reimbursement of expenses for an employee or their associate/s. These covers any refunds by the employer of any expenses nonrelated to the profession of the worker (e.g. school fees, repairs of the residence belonging to the worker, etc.);
- allowances covering certain working conditions (night-work, work in an environment that is dangerous, etc.);
- payments on dismissal, such as when a contract of employment is cancelled; o Retirement pensions (other than those allocated by the RSSB); o Other payments carried out under a current, former or future employment.
It can therefore be seen that assessed income is not only the basic wage paid as a result of a contract of employment. Any cash payment related to income tax on employment will lead to the necessity of tax deduction by the company which makes these payments. In other words, it is required not only to look at the basic wage but also all other payments listed in article 13 of the DTI.
Benefits in kind
According to the law, payments in cash are not the only type of transaction to be taxed. Benefits in kind are also liable to income tax on employment. In this case the chargeable income will be the market value of the benefit in king that has been granted (art.15 DTI).
In the case of benefits in kind that consist of the free use of a motorized vehicle or the provision of housing by way of providing a residence to the worker, the assessed income is the flat-rate amount as defined by the law (Article 15.1 and 15.3 DTI) which is as follows:
- Ten per cent (10%) of remuneration for the use of a company car. The calculation is based on income excluding benefit in kind.
- Twenty per cent (20%) of remuneration for the provision of a dwelling. Again this based on employment income excluding benefits in kind.
Lastly, benefits provided to a person related to the employee are treated as if provided to the employee (Article 15.4 DTI). In particular, see Article 2, al.2, 4, A. DTI in which a relation is a spouse or direct ascendant or direct descendant.
Advances on salaries
If the employer grants an employee an advance on salary that is higher than three (3) months the gross salary, the difference between the interest which the worker should have paid if it had negotiated a loan at the rate used by the National Bank of Rwanda (BNR) and the interest actually paid by the worker is regarded as a chargeable benefit (article 15.2 DTI).
The law has changed in this area in recent times. The old tax law (Law nº8/97, dated June 26, 1997) exempted tax on 20% of the income of the worker. However, these provisions were repealed and the new tax law makes the total income of worker remuneration liable to tax. However, there are several categories of income which are exempted from tax (Article 14 DTI). These are:
- Payment or reimbursement of expenses engaged by the employee;
- Retirement contributions (pensions) paid by the Social security fund of Rwanda; o Pension contributions paid by the employer on behalf of the employee to RSSB. Before calculating and deducting income tax for employment (EIT), the employer must first of all deduct any pension contributions due to the RSSB. At the end, it should be recalled that the contributions for the occupational hazards are not aimed since they are supported entirely by the employer;
- Pension contributions paid by the employer on behalf of the worker into the funds of qualifying pensions. However, these contributions will be exempted only if they do not exceed ten per cent (10%) of the income of employment (including any benefits in kind) or an amount of 1,200,000Rwf per annum. If one of these two limits is exceeded, the surplus of the contributions compared to the limit will be treated as taxable remuneration. By “qualifying pension funds “, the law means pension funds developed in accordance with Rwandan law, with the principal function of the provision of pensions to residents and whose effective place of management is located in Rwanda during the fiscal year (article 2, parag.2, 8º
DTI); o Income earned by a foreigner as remuneration of employment relating to a foreign government or of an nongovernmental organization controlled by a convention signed by the Rwandan Government, when this income is perceived to be for the services of people in Rwanda;
- Income received as employment remuneration with an employer that is nonresident in Rwanda by individuals who are non-resident as far as their services in Rwanda are concerned, unless those services are connected to a permanent establishment of the employer in Rwanda;
- Incomes received by a foreign diplomat or a consular representative; incomes received by any person employed and undertaking official functions in an embassy, a delegation, a consulate or a mission of a foreign State, which has the nationality of that State and has a diplomatic passport; or incomes received by any person who, not being of Rwandan nationality, is employed by an international organization having signed an agreement relating to it in accordance with Rwandan legislation.
 Article 6: of Tax Law no16/2005 of 18/08/2005; related on Foreign tax credit
 Article 6: of Tax Law no16/2005 of 18/08/2005; related on obligations
Penalties and Interest
A taxpayer who fails to pay tax within the due date is required to pay interest on the amount of tax due. Interest is calculated on a monthly basis at the inter-bank offered rate of the National Bank of Rwanda plus 2 (two) percentage points. For example, if the inter-bank rate is 9%, interest is imposed at 11% annually.
With regard to PAYE tax, a taxpayer is subject to a penalty and fine when failing to:
- file a tax declaration on time;
- file a withholding declaration on time;
- Withhold tax;
- Reply to an information request of the Tax Administration;
- Cooperate with a tax audit;
- Communicate their capacity or appointment as described by Article 7 §2 of the Law on Tax Procedures;
- Register as described by Article 10 of the Law on Tax Procedures; or
- Comply with Articles 12, or 13 of the Law on Tax Procedures.
The Income Tax Of Businesses Taxpayers concerned
Taxable taxpayers required to pay income tax on business benefits are physical people who carry on activities involving financial remuneration on a purely personal basis. In other words, such taxpayers should not have formed a commercial company, nor to be under a bond of subordination with their contracting parties. If these latter situations existed, the corresponding tax due would be corporate or employment income tax.
Examples of such taxpayers would often include generally tradesmen or ‘liberal professions’ such as lawyers, doctors and consultants.
The Concept Of Benefit
According to article 16 of the DTI, business benefits are measured as the amount of the receipts drawn from all the transactions of businesses of a company, decreased by any appropriate expenditure. These benefits also include the profit generated on any sale of an asset (i.e. the difference between the price at acquisition and the selling price), the products of liquidation received during the fiscal year, the reduction in any liability, the undervaluation of an asset or the over-estimate of an element of a liability and any gain on debts contracted in currencies if this currency has lost value compared to the Rwandan franc (art.19 DTI).
Moreover, the tax law states that commercial stocks are evaluated at the lower of cost price or the value on the last day of the fiscal year. In effect, any gain on commercial stocks in this period is also taken into account (art.23 DTI).
Any benefits will be calculated on the basis of operating statement (profit and loss account) prepared in accordance with the National Accounting Plan (Article 7 Para 2 DTI).
It is the taxpayer, and not the tax authority, who evaluates the requirement to incur expenditure on behalf of the business.
However, not all business expenses are deductible against tax. Any expenditures may be offset against taxable income when they comply with the general conditions of deductibility outlined by article 21 of the DTI:
- Such expenditure must be committed for the direct need and the normal requirements of the company;
- They must be supported by appropriate documentation to confirm that they have been incurred;
- They must involve a reduction of the net assets of the company;
- They must be included for tax purposes in the expenditure of the period during which they are committed.
Parallel to these general conditions of deductibility (which apply to all expenditure), the law takes into account some expenses which are excluded from the expenditure deductible from taxable profit. These include in particular (art 22 DTI):
- Premiums, percentages, attendance fees and other similar payments allocated to the members of the Board of directors;
- Declared dividends and participations in profits;
- The surplus of interest paid on loans made out in a foreign currency, compared to the interbank rate offered in London or “London Inter-Bank Offered Rate “
(LIBOR) at the beginning of the fiscal year increased by one percent (1%); o Contributions to reserves, provisions and other funds with specific purposes, others that those envisaged by the tax law.
- Those reserves, provisions and funds which are mentioned by the tax law, and which consequently are accepted as deductible, include in particular qualifying pension funds (art.14 4º DTI) and investment provisions (Article 26 DTI);
- Fines and other penalties;
- The proportion of any gift (donations in cash or the equivalent value of gifts in kind) which exceeds one percent (1%) of sales turnover. However if these gifts are granted by persons or entities carrying on a gainful employment, the gifts will not be entirely non-deductible;
- Income tax of businesses that is paid abroad and value-added tax (VAT);
Indeed, tax paid abroad is not deductible from the tax base under consideration – it instead constitutes a foreign tax credit. Also the VAT cannot be deductible expenditure since it is offset against output VAT. However, all other taxes are deductible from the tax base, as the law only specifically prohibits the deduction of the two taxes discussed above; o Personal consumer expenditure and any entertainment expenditure provided that this expenditure was not already included on income tax of employment (EIT).
Depreciation is an annual charge against the profits of a company to take account of the theoretical reduction in value resulting from the use of fixed assets belonging to the organisation. It therefore forms deductible expenditure for the fiscal year under consideration. However, some assets that are not subject to physical deterioration and associated depreciation in the same way are not allowable. These include in particular land, the works of art and heritage assets (art 24 paragraph 2 DTI).
The law outlines four (4) categories of acceptable charge relating to depreciation (article 24 para. 3, 4 and 5 DTI) which have their own specific allowable rates as follows:
- Construction of, or the costs of acquisition of, costs of improvement, restoration or rebuilding of tangible assets, The annual allowable rate of depreciation is 10% of the cost price. Examples: of such assets include industrial buildings, machines and tools etc.;
- Development or costs of acquisition, costs of improvement, restoration or rebuilding of the intangible assets, which includes goodwill acquired from a third party. Annual rate of depreciation is 10% of the cost price. The assets thus will be entirely depreciated in ten (10) years. Example: Goodwill, concessions, patents, licences, etc.; o Computers and their accessories, information systems and communication. Annual rate of depreciation: 50% of the carried forward balance of the asset net of depreciation
- Other assets of the company: 25% of the carried forward balance of the asset net of depreciation. Examples: motor vehicles, furniture, etc. That is the assets are depreciated on a reducing balance basis
However, depreciation is calculated in two different ways according to whether one is in the first two, or the last two, categories described above:
- For the first two categories (depreciation of 5% and 10% of the cost price), depreciation is calculated individually, asset by asset, whereas for the last two (50% and 25% of the base of depreciation) depreciation is not calculated by individual asset, but by total category (article 24 of DTI);
- For the first two categories, the rate of depreciation applies to the cost price at the time of acquisition (which does not change over time) whereas in the last two categories, the rate of depreciation applies to the carried forward depreciated value (which decreases annually with each application of depreciation).
However, for the four (4) categories of allowable assets, when a used and depreciated asset (therefore either completely or partially depreciated) forms part of the business acquired by a taxpayer, then annual instalments of depreciation are calculated on the price at acquisition (if in the first two categories) or on the depreciated value (‘net book value’) of the asset if in the last two categories.
- For the first two categories, the depreciable life of the assets is known in advance (10 or 20 years) whereas for the two last the depreciable life cannot be agreed in advance – as they are depreciated on a reducing balance basis.
As far at the depreciation base is concerned, it is necessary to examine the book value of all the credits of the same category as they appear in the assessment at the opening of the fiscal year (article 25 DTI). However, it is necessary to add and deduct, to/from the taxable amount, the following amounts:
- The book value must be increased by the cost of any assets acquired or created, or by any costs of improvement, renewal and rebuilding affecting assets in the category during the fiscal year;
- Book value must be decreased by the selling price of the yielded credits and the allowances received for the loss of credits resulting from natural disasters or other involuntary transformations during the fiscal year.
It should be noted that if the depreciate value does not exceed 500.000 Rwf, the full amount constitutes a deductible running cost (art.25 of the DTI).
Finally, if the net book value is negative (as would be the case for example if the selling price of certain assets of the category are higher than the cost price of all the assets in the category of costs), this net amount is treated as a gain and the depreciated amount becomes nil (art 25 al.2 DTI).
According to paragraph 26 of the DTI, an investment allowance of forty percent (40%) of the amount invested in new or used assets may be depreciated excluding motor vehicles that carry less than eight (8) persons, except those exclusively used in a tourist business. This amount is deductible for a registered investor in the first tax period following the purchase and/or of use of such assets if:
- – the amount of business assets invested is equal to thirty million (30,000,000)
Rwandan francs; and,
- – the business assets are retained for at least three (3) tax periods after the tax period in which the investment allowance was taken into consideration.
The investment allowance becomes fifty (50%) if the registered business is located outside Kigali or falls within the priority sectors as described by the Investment Code of Rwanda.
The investment allowance reduces the acquisition or construction cost, as well as the basic depreciation value of pooled business assets.
If the business asset that is granted an investment allowance is disposed of before the end of the period mentioned in the above point 2°, the reduction of income tax stemming from the investment allowance, increased by any interest and penalties applicable to taxpayers who do not pay their tax on time, covering the period from when that investment allowance was granted to the time of disposal, must be paid back to the Tax Administration unless such an asset is destroyed by natural calamities or other involuntary conversion.
However this deduction is not allowable unless the following conditions are fulfilled:
- It is necessary to be a recognised and registered investor;
- The acquired asset cannot be a vehicle capable of transporting less than eight (8) passengers unless it is used solely for tourist business;
- The amount invested must be at least 30 million francs;
- The assets must be held for at least three (3) fiscal years from the time that the provision for investment was taken into account;
Expenses for training and research
Art. 27 DTI prescribes that expenses of training and research during a fiscal year are fiscally deductible expenses.
The law specifies that such expenditure does not relate to any costs of acquisition including the improvement, restoration and/or rebuilding of land, buildings, and installations and other buildings, has as well as the expenditure for the research of the goods and other acquisitions / inheritances. However, whereas the concept of expenses of training does not cause any problem of comprehension, that of the expenses of research still does not appear clearly.
To understand this concept more clearly, it is necessary to refer to relevant “International Accounting Standards” (IAS). In IAS 9 regarding “activities of research and development” (August 1991), the IAS established a distinction between:
- Research: this relates to original research undertaken in order to acquire original scientific and technical training;
- Development: this relates to the translation of the results of research into a plan of production of materials, apparatus, products, processes, systems and services new or substantially new before the commencement of production or commercial exploitation.
In our opinion, by expenses of research, the law wanted to also include the expenses of development because the two expenditures take part of the same intention. See IAS on R%D and the way these costs are treated in the books of accounts
The deduction of bad debts is allowed for tax purposes but a bad debt is regarded as irrecoverable only if the loss has acquired a final and irreversible nature during the taxable period. The loss of the debt should not be simply probable. Just when a bad debt becomes irrecoverable becomes an issue of fact on the part of the tax department.
Moreover, the irrecoverable bad debt must meet certain conditions in order to be fiscally deductible (article 28DTI).
- This bad debt has been previously included before in the income of the taxpayer; o The bad debt has then been cancelled for accountancy purposes;
- The taxpayer has taken all reasonable steps to recover the debt and has conclusive evidence confirming the insolvency of their debtor.
As its name indicates, income tax s relates to profits earned by a taxpayer. However a taxpayer does not generate such profits during a fiscal year; they can also incur losses. In this case, not only does the taxpayer avoid a tax liability during the fiscal year, they also have the right to deduct such losses from previous or future profits.
Rwandan tax law allows for the principle of a “carry forward “. Under the terms of this, losses in one taxable period can be deducted from the profit earned in the future periods. One could argue that this ability to carry forward losses in one year to be deductible from profits earned in future years can offer a business a boost. Losses can be carried forward for five years. Losses cannot be set against profits of earlier years – which would be asking the RRA to repay some of the tax already paid. As said earlier tax cannot be reclaimed unless an error was made and agreed.
However: per Article 20 of Law 16/2005 (DTI) “A loss in tax period in which a long-term contract is completed may be carried back and offset against previously taxed business profit from that contract to the extent it cannot be absorbed by business profit in the tax period of completion.
Article 29: Loss Carried Forward
If the determination of business profit results in a loss in a tax period, the loss may be deducted from the business profit in the next five (5) tax periods, earlier losses being deducted before later losses.
The previous Article 20 refers only to the specific long-term contracts.
In Rwanda, the taxpayer can offset losses for specific long-term contracts from the current fiscal year against the profits of the previous five (5) fiscal years (art.29 of the DTI).
However, losses incurred overseas cannot be offset against any profits of Rwandan origin during the same fiscal year, or against any future or previous profits of Rwandan origin.
Article 29 Para 3 (DTI) If during a tax period, the direct and indirect ownership of the share capital or the voting rights of a company, which [whose] shares are not traded on a recognized stock exchange changes more than twenty five per cent (25%) by value or by number, paragraph one of this Article ceases to apply to losses incurred by that company in the tax period and previous tax periods.
Article 20: Long-term contract
The timing of inclusion in and deduction from business profit relating to a long-term contract is accounted for on the basis of the percentage of the contract completed during any tax period.
The percentage of completion is determined by comparing the total expenses allocated to the contract and incurred before the end of the tax period with the estimated total contract expenses including any variations of fluctuations.
Within the meaning of the law, a long-term contract is a contract for manufacture, installation or construction, or the provision of services relating to these activities, which is not completed during the fiscal year in which it begins. This excludes any contracts whose completion is envisaged within twelve (12) months of their commencement (art.20 DTI).
For these contracts, the following rules apply:
- Business profit relating to a long-term contract is accounted for on the basis of the percentage of the contract completed during any tax period. As per ISA standard IAS 11, the percentage of profit is calculated from the percentage of completion and takes into account estimation future costs. Para 3 allows that where a long term contract subsequently makes a loss where previously a profit was anticipated and duly assessed, the realised loss can be offset against the previously taxed profits when calculation the tax due in the fiscal year of the completion of the long term contract. The percentage of completion is determined by comparison of the expenditure related to the contract and incurred before the end of the fiscal year as a proportion of the estimated total of the expenditure over the duration of the contract as a whole, including allowance for possible variations and fluctuations; Also do the same for revenue and the profit or loss is the difference earned for the contract so far..
- If a loss is incurred during the fiscal year when the long-term contract is completed, this loss will be offset against the profits of former fiscal years. In other words, the taxpayer will be given a tax credit (or refund of tax) in line with the system of carry back (as discussed above).
It is possible that certain commercial operators are ‘related persons’. The tax law specifies what specifically is understood by this term. They include the following categories (Article para. 2 4ºDTI):
- An individual and his/ her spouse, his/her direct ascendants and descendants
- A company and any person who holds directly or indirectly fifty per cent (50%) or above, in value or by number, of the shares or voting rights in the companies.
In this case, if such parties apply transaction terms other than those which would be employed between independent parties, the Commissioner General of Rwanda Revenue can order, in conformance with the directives of the Minister of Finance, may direct that the income of one or more of those related persons is to include profits which he/she or they would have made if he/she or they operated as independent persons.
To allow the just and effective application of this measurement, the Commissioner General may agree in advance with individuals involved in commercial and financial activities, that in certain conditions the situation governing the relations between dependent persons do not differ from relations between independent parties (art.30 DTI).
This particular rule is of course an anti-tax-avoidance measure designed to ensure that certain interconnected economic operators do not fix abnormally low prices in their business transactions, as this would result in a reduction in assessed incomes and, consequently the tax collected as a result.
Agricultural and breeding activities
The tax law exempts from tax the income arising from agricultural and breeding activities if annual turnover does not exceed twelve million (12.000.000 Rwf) Rwandan francs during a fiscal year (Article 18 DTI).
This measure is intended to take into account the significance of these activities in the Rwandan economy reality where more than 90% of the population relies on subsistence agriculture with the sale to local markets of any surplus from their harvests. However, when the value of such sales exceeds the amount indicated, the law takes the view that the related agricultural activity is no longer one at subsistence levels. Therefore, the income of these activities will be taxed.
Payment of tax
The type of taxation on the incomes on the profits of businesses depends on the sales turnover realized by the taxpayer.
Contractual mode of imposition
This mode automatically applies to the small businesses classified as those whose annual sales turnover is lower than 20 million RwF per fiscal year (Article 2,6º DTI). It also applies to other taxpayers who may have elected to adopt this mode of taxation. Here, tax will not be levied on the actual profits of the taxpayer but on their sales turnover, with a contractual tax rate equal to four percent (4%) of annual sales turnover (Article 11.2 DTI).
However, these small businesses can choose to be taxed on their actual profits according to a simplified accounting method determined by Ministerial decree (Article 17 DTI).
Tax on actual profits
This type of taxation automatically applies to taxpayers whose annual sales turnover is equal to, or higher than, 20 million Rwandan francs per fiscal year. The taxable amount is not in this instance the sales turnover but the profit earned. The applicable rate is applied on a progressive scale which is identical to that applicable to income tax on employment (see above).
As is the case for income tax on employment, the assessed income is rounded to the nearest thousand RwF (Article 11 DTI).
Declaration and payment of tax
Filing of intermediate returns and payments dates
The taxpayer who receives the taxable benefit of a business must prepare and file their tax declaration by, at the latest, the 30th day of the sixth month of the fiscal year following the period in which the taxable profits were earned (Article 12 para. 1 DTI). At the same time, they have to calculate and pay the amount of the tax due to the tax authorities in the relevant instalments.
Indeed, the taxpayer must submit to the tax authorities quarterly instalments of 25% of the amount of the tax due in accordance with the tax declaration of the previous fiscal year, This amount is reduced by the tax withheld in that tax period in accordance with Articles 51 and 52 of this law. These articles (51 and 52) relate to withholding taxes imposed on Royalties, Interest, service fees etc. and on imports.
(Article 31 DTI). They must pay these instalments at the latest by June 30th, September 30th and December 31st of the year of the taxable activities involved. On March 31st of the year when the taxes must be settled for the previous fiscal year. .
If the taxpayer uses fiscal years which do not coincide with the calendar year, the quarterly instalments must be paid by the last day of the ninth and twelfth month of this fiscal year and the third month of the following fiscal year.
If the taxpayer began his activities during the preceding fiscal year, the quarterly instalment is equal to twenty five percent (25%) of the amount of the tax due arising in the preceding fiscal year, adjusted by dividing by the number of months during which the taxpayer undertook his activities during this preceding period and multiplying by twelve (12).
Importation and markets
In addition to the above, certain operations are the subject of a deduction at source – withholding tax. These are imports and payments by public institutions in relation to public tender/service contracts. (Article 52 para. 1 and 2 DTI):
o An advance calculated as five percent (5%) of the cost of the imported goods, including Cost Insurance and Freight (known as CIF) when regular commercial practices are applied to transactions involving these goods. In contrast to other deductions at source, this reserve is not assigned by the party that receives incomes; it is carried out by the taxpayer himself, i.e. the importer and is paid to Customs
A withholding tax of three percent (3%) on the sum of invoice, excluding the value added tax, is retained on payments by public institutions to the winner of public tenders.
However such deductions at source do not apply to the taxpayers who are in one of the two (2) following categories (article 52 para. 3 DTI):
- Taxpayers whose business profits are exempt from taxation;
- The taxpayers who have a tax clearance certificate and this is granted annually by the Commissioner General of the RRA. This final tax scheme applies only to “good taxpayers” i.e. those with a good tax track record such as timely submission of tax declarations, prompt payments of tax liabilities and those who do not have tax arrears.
Tax on investment incomes Tax base
As far as investment income is concerned, the tax law aims to tax any payment received in cash or in kind by an individual in the form of interest, dividends, royalties or rent and which was not taxed as a business profit (art.32 DTI – Income from Investments). In other words, any income from investments received by commercial companies will not be subject to withholding tax if the quarterly tax calculations include this income. (Section 3 Article 31 DTI).
Income in the form of interest includes any income arising from loans, deposits, guarantees and current accounts. It also includes income from government securities, income from bonds, and negotiable securities issued by public and private companies and income from cash bonds
Income in the form of dividends includes income arising from shares and participation in the profits in any type of company as well as similar incomes distributed by any entity enumerated by article 38 of the law. Withholding tax is 15%
The term “royalty income’ includes all payments of any kind received as a payment for the use of, or the right to use, any copyright of literary, craftsmanship or scientific work including cinematograph films, films, or tapes used for radio or television broadcasting. The term also includes any payment received from using a trademark, design or model, computer application secret formula or process. It also includes the price of using, or of the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific knowledge. Royalty income also includes payments for natural resource payments. Again tax is 15% flat rate
Rental income: All revenues derived from rent of machinery and other equipment and land including livestock in Rwanda, are included in taxable income, reduced by:
1° ten per cent (10%) of gross revenue as deemed expense; 2° interest paid on loans;
3° depreciation expenses as determined according to Article 24, paragraph 3 of this law. Income derived from the rent of buildings or houses incorporated as assets mentioned in Article 38 of this law is subject to corporate income tax and is exempted from rental income tax.
Rental incomes arising from houses and buildings incorporate as assets of qualifying entities (Art 38) are subject to corporation income tax and are exempted from rental income tax. (Article 36 DTI).
Finally, it should be noted that some incomes can be compared to investment income as they are deducted at source using a rate identical to that used on investment income. These incomes include any profits from the lottery or any another games of chance (art. 51 DTI). And yet more finally, lottery and gambling winnings are also subject to withholding tax at 15% and this deducted at source.
All withholding tax agents must complete returns and payments within 15 days of the period end,.
Payment of tax
The rate of income tax applied to investments is not applied on a progressive basis as is the case for the majority of income tax payments described above. They are instead applied using a proportional rate which is fixed at fifteen percent (15%) of the assessed incomes (Article 33 parag.1 DTI).
“A withholding tax of fifteen percent (15%) is levied on the following payments made by resident individuals or resident entities including tax-exempt entities:
These incomes are any dividends, except those paid between companies, any interest paid on deposits, royalties, payments for performance by musicians, artist sportsperson and the profits of lotteries and other games of chance which have a monetary value (Article 51 DTI). The payments are subject to tax even when paid by or through an entity not resident in Rwanda For other investment incomes (interest other than that paid on money deposits, or rental incomes, other than those on houses and buildings and received by physical persons) the recipient will have to submit an annual declaration and to pay tax at a proportional rate of 15% by, at the latest, the 30th day of the sixth month of the following fiscal year (Article 12 DTI).